Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macro-economic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit rating’s performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Arab Republic of Egypt (long-term local- and foreign-currency issuer and senior unsecured debt ratings: B-/Stable; short-term local- and foreign-currency issuer ratings: S-4/Stable) on 8 July 2024.

This monitoring note does not constitute a credit-rating action, nor does it indicate the likelihood that Scope will conduct a credit-rating action in the short term. Information about the latest credit-rating action connected with this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

For the updated rating report accompanying this review, please see here.

The Arab Republic of Egypt’s B-/Stable ratings are underpinned by the following credit strengths: i) its diversified and resilient economy; ii) robust relations with official creditors and extensive financial and investment assistance; and iii) a track record of structural reforms. At the same time, challenges relate to: i) high external financing needs amid challenging funding conditions on debt capital markets and gradually recovering international reserves; ii) large fiscal deficits resulting from high interest burden and public expenditure rigidities limiting policy flexibility; iii) high public debt relative to GDP; and iv) socio-political challenges.

Following the investment package of an Abu Dhabi-based investment and holding company (about USD 35bn), Egypt successfully renegotiated the IMF Extended Fund Facility (around USD 8bn) and reached an agreement with the IMF staff for the completion of the third review, paving the way for a disbursement of about USD 820m in July 2024. External financial assistance, coupled with the devaluation of the pound and monetary policy tightening, support foreign capital inflows and the replenishment of net international reserves of the Central Bank of Egypt (USD 46bn as of end-June 2024). The Egyptian authorities’ commitment to advance an investor-friendly reform agenda following the recent cabinet overhaul could also support external resilience over the medium-term.

However, Egypt’s high interest burden (almost 50% of revenue on average by 2029), wide budget deficit (7% of GDP on average by 2029), and high government debt (around 95% of GDP in 2023) significantly hamper the capacity to withstand near-term external shocks, a major downside risk in the context of regional instability. Additionally, the stability of the pound vis-à-vis the US dollar since the March devaluation raises concern about the commitment to the liberalisation of the exchange rate regime, which has been a key policy conditionality of the IMF programme to foster private sector-led growth and external competitiveness. Against this backdrop, further clarity and sustained progress in the implementation of the economic reform agenda are necessary to gain greater confidence about the reduction of macroeconomic, fiscal and external imbalances over the coming years.

The Stable Outlook reflect Scope’s view that the risks over the next 12 to 18 months are balanced.

The ratings/outlooks could be upgraded if, individually or collectively: i) successful execution of IMF policy conditionality led to a sustained reduction in external risks, such as higher net international reserves and improved foreign currency liquidity; and/or ii) a sustained fiscal consolidation and/or higher-than-expected GDP growth lowered the interest burden and/or placed the public debt-to-GDP ratio on a firm downward trajectory.

The ratings/outlooks could be downgraded if, individually or collectively: i) significant shortfalls in the execution of the reform agenda underlying the official sector’s financial assistance reduced net international reserves and triggered foreign currency shortages; and/or ii) a firm upward trajectory in the interest burden and/or public debt-to-GDP undermined debt servicing capacity, for example, due to limited fiscal consolidation and/or lower GDP growth.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 29 January 2024) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Thomas Gillet, Director

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